Buyers Less Bullish Than Nets On Upfront Ad Sales Volume

Talk to the top media buyers and you’ll hear that this year’s upfront spending is down more than the networks are letting on.

Reports have focused on networks as they slowly completed their upfront deals. Not until last week did the Walt Disney Co. say that ABC finished up its negotiations.

Naturally, the news came with a happy face, with most networks at least hinting at increasing prices and higher sales volume.

Buyers use a familiar barnyard epithet when asked about some those reports and walk you through math that show that if ratings are down 20%, in order for volume to rise, prices would have to be up at least that much—and that ain’t happening. “I think there were a number of players who really did get hurt in terms of their volume,” said one veteran media buyer. “You’re hearing from all the ones that did well.”

A senior media buyer said his agency is still putting the finishing touches on its estimate of where sales volume finished this year, but he thinks that broadcast volume will be down 7%-10%. Cable network volume will wind up in similar territory, he said.

“I think it played out pretty much as we forecasted,” said one top buyer at a very large agency. “Last year in the upfront, spending was down and it was somewhat unexpected how much it was down.”

Despite the drop in upfront volume, most media companies reported small gains or smaller declines in ad revenue in the last couple of quarters, indicating that most of that money came back in scatter.

Scatter Chatter

Scatter heated up a bit in the second and third quarter. “There’s some signs of life,” the buyer said. Though scatter is growing in significance, the upfront isn’t ready to go away. “I think it’s reflective that upfront is still important but a little bit less important,” the buyer said. “You have more alternatives in video and everything else in digital and you want more flexibility to follow where the audience is going.”

Wall Street is watching all of this carefully. At this point, the prevailing view is that the upfront hasn’t been a disaster. “Overall, fear of a significant decline seems overblown as a combination of traditional ad sales and digital helped keep market afloat,” said analyst Marci Ryvicker in a recent report.

No Crossing the Streams

TV advertising faces a host of threats as the media environment turns increasingly digital. Ratings are dropping partly because viewers are spending more time with streaming video such as Netflix and YouTube. And some people viewing TV shows aren’t included in the C3 and C7 metrics used to buy and sell spots.

At the same time advertisers are shifting money to online video to reach younger, tech-savvy, cord-cutting consumers. They also like the notion that they can target online video ads more precisely and get a better accounting of the effectiveness of their campaigns.

TV networks are trying to fight back by offering more data products designed to better target commercials and to document that money spend on TV results in sales. One buyer said that the additional data helps, particularly with clients interested in focusing on a strategic target.

And while programmatic was another big topic of conversation, it was unclear how much of a factor it was in this upfront. “The whole idea of programmatic is to be able to access the audience that you want closer to real time. So to me there’s a contradiction [in] committing during the upfront to programmatic spending,” said one of the buyers. “You commit to a way of working, you commit to an intention to spend.”

The buyers said that the network agreed to use more realistic audience estimates in this upfront. With so many networks reporting double-digit ratings drops, that had to be accounted for. “It’s a big issue in cases where there were some big, unexpected under-deliveries,” one buyer said.

“It ends up just costing both the sales organization and the agency more time and effort to manage makegoods when their estimates are so bad,” a buyer said.

But the buyers thought that the networks managed to get bigger price increases than they should have in this upfront. The price increases were slightly smaller than last year, but still went up to at least 5%.

They blamed some of those increases on agencies that did “protection deals” that purport to set rates at a certain number of points below the market average.

“I’m a little surprised with some of the agencies’ decisions just to move forward and agree to a price that frankly the marketplace does not support. This is not a marketplace that supports a 4% or a 5% increase. It just doesn’t,” said the veteran buyer.

With protection deals, salesmen can’t agree to a low price for one agency because they then have to lower prices for already completed deals.

“These protection deals put all the power in the hand of the seller,” he said. “If the buyers had held out a little longer, I think we would have seen a different pricing in the marketplace.”

WHAT THE NETWORKS ARE SAYING

Media companies sounded upbeat about their upfront sales performance on some of last week’s earnings calls. Here are a few samples:

“Looking ahead, we are optimistic about ABC’s fall lineup which advertisers have responded to by agreeing with ABC’s industry-leading pricing gains in our just-completed upfront.”—Tom Staggs, Walt Disney Co. COO

“In the just-completed upfront we once again finished strong with total volume up mid-single digits. This was driven by low-to-mid single-digit increases in CPM pricing, coupled with selling approximately half our inventory, or a little more than we did last year.”—Lori Hickok, Scripps Networks Interactive CFO

“While final numbers are not yet available, we expect to outpace our competitors with total volume projected to grow by low single-digits on Hallmark Channel and by double digits on Hallmark Movies and Mysteries. CPM growth in expected to come in at or above market average.”—Bill Abbott, Crown Media Family Networks CEO

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